MOL Rt, Hungary’s oil and gas company, took the first steps toward becoming simply an oil company last Friday, announcing that it reached a deal with Germany’s E.ON Ruhrgas AG to sell a part of its midstream gas division.
After the announcement of the deal, which values the majority stake in the gas business at €2.2 billion, MOL’s stock price rocketed some 10%. Commenting on the price, Tamas Pletser, Central and East European oil and gas analyst at Erste Bank Investment Rt, said the deal is extremely favorable for MOL.
The deal gives E.ON Ruhrgas, part of the E.ON AG group, a stake of 75% minus one share in MOL Natural Gas Supply Rt, MOL’s gas wholesale, marketing and trading division, and a stake of the same size in MOL Natural Gas Storage Rt. Included in the price of the companies is €350 million in debt owed by the two gas companies.
Pletser said the sale will work to MOL’s benefit, as the gas companies have suffered in the past from government-imposed gas prices.
The contract also gives MOL a five-year option to sell its remaining stakes in the two companies to E.ON at fair market value. In addition, the sale also includes a 50% stake in Panrusgaz Hungarian-Russian Gas Industry Rt, which imports gas into Hungary from Russia. The other 50% of Panrusgaz is owned by Russia’s oil and gas giant Gazprom, and thus the sale requires Gazprom’s approval. Pletser said this is unlikely to present a stumbling block.
Concurring, Laszlo Varro, chief economist at the Hungarian Energy Office (MEH), said he does not expect complications.
MOL CEO Zsolt Hernadi welcomed the sale of the gas businesses. Hernadi added that MOL will return some of the money from the sale to shareholders and will reinvest the rest.
The transaction must still be approved by the Competition Office and the MEH. MOL expects the deal to be completed in the first half of 2005.
Speaking at a press conference in Budapest on Friday morning, Burckhard Bergmann, CEO of E.ON’s gas unit, said demand for gas in Hungary will exhibit sustainable growth. Gas accounts for 40% of the country’s total energy consumption. He also predicted that similar growth will be seen in Central and Eastern Europe as a whole, and that the newly acquired unit could be used as a hub to supply gas to neighboring countries.
Erste’s Pletser said such a regional hub would benefit E.ON, as domestic gas consumption in Croatia, Romania and Serbia is at much lower levels than in Hungary. Pletser also noted that E.ON acquired relatively cheap storage facilities with the deal.
According to Varro, the sale of MOL’s gas storage and gas distribution businesses marks the largest private corporate transaction since the political changes in 1990.